Is Indian Automobile Sector ready to go Electric?

The Indian government is preparing a road map that may seek to phase out petrol and diesel vehicles. While the next ten year plans include a push for a full transition of three-wheelers, and scooters and motorcycles with engine capacities of less than 150cc to electric by 2023 and 2025, respectively, the larger plan is to examine shifting non-commercial vehicles at an intra-state level and then extend it to inter-state by including commercial vehicles and passenger vehicles.

While everyone is focusing on the benefits of electric vehicles, some of the serious questions that need to be answered are: Is India prepared for such faster adoption of electric vehicles? Does the currently used EV technology robust enough? Will EVs make us more dependent on China?

The straightforward answer to these questions lies in the availability of the most critical part of EVs which is 'Battery' that accounts for 70% of the cost of electric two wheelers and 50% of cars. Electric vehicles require lithium-ion batteries (LIB) to function and the limitations of LIBs are likely to act as a hindrance for the faster adoption of electric vehicles in India.

While LIBs are quite expensive and does not support long distance travel, the raw materials required to make LIBs are in short supply. LIBs require metals like lithium, cobalt, and manganese with each metal having its own importance. For example, lithium generates a flow of electrons and helps charge the battery whereas cobalt prevents battery overheating. But the problem is world does not have enough of lithium or cobalt reserves needed to replace current automobiles with EVs and worse is most reserves are located in very few countries. About 65% of lithium reserves are in Bolivia and Chile, while 60% of cobalt reserves are in Congo, Africa. Subsequently, the short supply has made both the metals quite expensive.

Thus, this is a question of concern even for large EV players like Tesla except for China. This is because always a long term planner, China has secured a supply of essential metals with purchases of mines in Congo, Bolivia, Chile and Australia and controls half the cobalt mines in Congo.

With raw material supplies in place, China set out to become a global battery and EV hub. With strict policy and generous state support, Chinese firms command over 60% of global battery market share. China was also the largest EV producer with more than a million vehicles sold in 2018.

In order to tackle this problem, many countries are investing in developing next-gen batteries that would replace LIBs. Panasonic, Tesla, Toyota, and Chinese manufacturers are at the forefront of research. These companies are trying to reduce the use of expensive cobalt and many firms are experimenting with sulphur, sodium and magnesium to replace cobalt.

In case of India, the country has two options to pursue its EV dreams. Either to develop in-house LIBs battery expertise or to import the batteries from China. However, setting up battery units in the domestic market would take time and it is quite difficult to match the subsidised prices of imported batteries. Thus mostly Indian companies take import route. India imports 90% of electric scooter components from China. Currently, an Indian car uses 10-15% imported parts. EVs will increase import dependence to 70% or more. Thus, India should focus on developing its expertise in battery technology in order to pursue its EV dreams without being highly dependent upon any country.